Non Disclosure Agreement NDA – the start of a business acquisition. This succinctly describes the importance of a non-disclosure agreement. Every company takeover - be it a company purchase as a share deal or as an asset deal - requires careful legal planning and coordination of the takeover process.
1. Non-Disclosure Agreement NDA – antitrust law company acquisition
As your lawyer, I offer you advice tailored to your needs in antitrust law and corporate law when buying or selling a company. The following important aspects apply regardless of whether it is a company purchase, for example in Munich, or a cross-border situation in Europe with an international dimension. Any agreement regarding the confidential treatment of information must comply with the law and the law. The following topics should therefore be considered with every intended purchase of a company. Advice on antitrust law is required where the contractual partners or the target company are competitors. The unreflected use of samples is therefore prohibited - every non-disclosure agreement must take the specific situation into account. In addition to corporate law and tax aspects, issues relevant to antitrust law should also be adequately taken into account. This does not only apply to the period after the conclusion of the contract, for example to non-competition clauses for the seller. Antitrust and competition law must be observed early on, before the transaction has even started.
At the beginning of a company purchase there is always a non-disclosure agreement NDA or a confidentiality agreement. Both – also referred to as non-disclosure agreements or NDAs in an international context – mean the same thing: the buyer wants to get an idea of the company before making the purchase. The seller does not want to disclose information that is important to him and protect himself from its unfair use. This is especially true if there is a risk that the buyer will use the information for their own purposes and only pretends to be interested in a share deal or asset deal. As a lawyer and specialist lawyer for international business law and specialist lawyer for commercial and corporate law in Munich, I would be happy to advise you on the dangers and unfair behavior when concluding a non-disclosure agreement before the start of a transaction.
2. Non-Disclosure Agreement NDA and Information Sharing
If a company wants to take over a competitor, the company purchase begins with preparatory measures that are established in practice. At the beginning there is usually the conclusion of a non-disclosure agreement (NDA), i.e. a confidentiality agreement for information to be disclosed. In this NDA, the target company undertakes to disclose information that gives the potential buyer a first impression of the target company. Information that is regularly important to the buyer concerns the financial, tax and commercial situation of the company. However, the seller only wants to disclose as much data to his potential contractual partner as he needs to check the potential purchase, and only in stages.
Such an NDA contains regulations on the disclosure of information and its purpose, among other things. Other important points are the safeguarding of confidentiality, exceptions to confidentiality and the exclusivity of the negotiations. Incidentally, such regulations can also be regulated in a letter of intent, a declaration of intent. In the further course of the company purchase, due diligence, the examination of the company for possible risks, regularly follows. In the due diligence phase, the buyer receives a detailed insight into the circumstances of the target company. This includes in particular customer lists, suppliers, price agreements, strategic planning, production and purchase quantities, pricing including discount policy, etc.
It is crucial for the parties that the target company already discloses information to the buyer, regardless of the designation of their agreements as an NDA, non-disclosure agreement, letter of intent or similar. If buyer and target company are competitors active in the same geographic product markets, this disclosure of information is critical from an antitrust perspective. Because the buyer receives information from a competitor that would otherwise not be publicly accessible to him. If the acquisition of the company fails, he can therefore adjust his own competitive behavior, such as his pricing. This disclosure of information thus ensures increased market transparency and reduces competition. Therefore, it is important that the NDA or non-disclosure agreement includes a clause that this information may not be used for any purpose other than verifying the transaction. They must never be used to adjust one's own competitive behavior.
4. Non-Disclosure Agreement NDA – Antitrust Aspects
So when there is actual or potential competition between the target company and the buyer, the exchange of information is critical. Antitrust compliance must therefore play an important role from the outset when planning a company acquisition. With my office in Munich, as a lawyer and specialist lawyer for international business law and commercial and corporate law, I can provide you with comprehensive advice and protect you against violations of antitrust law. As an experienced lawyer, I respond to the following antitrust questions and aspects from the outset when acquiring a company, especially between competitors:
The NDA should be as specific as possible about the purpose of disclosing data. A cartel authority such as the Federal Cartel Office or, at European level, the European Commission often gets wind of an exchange of information between competitors. She will then ask exactly for what purpose the data was disclosed. If the exchange of information only takes place unilaterally towards the buyer, a unilateral non-disclosure agreement must be used to regulate that the purpose is a so-called due diligence test, which is intended to prepare for a company purchase or a joint venture between competitors (read interesting information here the requirements of a middle class cartel between competitors). For this purpose, the exchange of information is also permissible, since competition law and the law in the form of the GWB are also intended to enable free competition. However, for antitrust reasons, any appropriate non-disclosure agreement also stipulates that the information may not be used for the buyer's own purposes.
The exchange of sensitive data as part of due diligence is particularly critical if the buyer can get an idea of how the target company will set its prices in the future or otherwise align its competitive behavior. Any non-disclosure agreement in the context of a company acquisition must therefore primarily identify margins, discounts, capacities, customers, suppliers, production quotas, utilization and marketing measures as confidential information that must not be readily disclosed. Otherwise, there is not only a threat of violation of antitrust law. There is also the risk of unfair trading, in which the buyer only pretends to be interested in buying and only obtains the data in order to achieve a competitive advantage and to be able to engage in unfair competition.
5. Non-Disclosure NDA – Risk Avoidance
The contracting parties must also adhere to the secrecy of this confidential information. The contractual agreement in itself is not sufficient. In order to still give the buyer a complete picture during the due diligence check, it is therefore usually agreed that this price-sensitive confidential information is initially only disclosed in aggregated and anonymous form. The content of essential contracts must be summarized in such a way that no conclusions can be drawn about the individual contract. With advanced due diligence, buyers and sellers can then move on to handing over price-sensitive information to a so-called “clean team” of the buyer. This "clean team" consists of the buyer's employees and consultants who cannot do anything with this data in their daily work, i.e. are not involved in the operative business. This prevents the information disclosed in connection with the company purchase from being used unfairly if no company purchase agreement is concluded. If the employees come from the operational area, they may not be active in their actual function during the examination. Therefore, as a rule, managing directors are excluded as members of the clean team from the outset. If the company purchase agreement fails, operationally active members of the clean team must be released from work for a few months. This sounds complicated and time-consuming. However, as a lawyer in Munich with a focus on antitrust law, I also take these compliance aspects into account. Because dealing with the Federal Cartel Office in the event of a violation of competition law is far more strenuous and expensive.
If these aspects are taken into account in a non-disclosure agreement NDA, as is necessary in the respective case and in the respective competitive situation, and if they are also implemented as part of the company acquisition, a violation of competition law and the GWB can be largely prevented. However, it is not possible without these appropriate confidentiality measures. Regulations on contractual penalties in the event of a violation of the non-disclosure agreement are possible in the case of company acquisitions, but are generally not accepted by the buyer. They will therefore often have to be regarded as “bargaining ground”. Any non-disclosure agreement may also include exclusivity in negotiating the sale, but is typically included in a term sheet. The exchange of confidential information must therefore meet all antitrust requirements for the preparation of a company acquisition and a non-disclosure agreement, even below the merger control thresholds. As your lawyer and specialist lawyer, I am of course obliged to point out these aspects to you as a party to a non-disclosure agreement and to protect you from violations of antitrust law. This affects every party, regardless of whether they are sellers or buyers.
While violations of the UWG in the context of non-disclosure agreements NDA are rather rare, these principles also apply when working with a dominant company. According to antitrust regulations, companies are prohibited from abusing their dominant position. They are therefore not allowed to exploit their dominant position in the market to enforce inadmissible clauses, even within the framework of non-disclosure agreements with a competitor. Competition law and antitrust law are also strict here.
6. Information Sharing and Merger Control
The exchange of information becomes even more explosive when a company takeover falls under European or national merger control regulations. It is true that this will often play no role for transactions by small and medium-sized companies because, for example, the European turnover thresholds under the Merger Control Regulation, from which merger control takes effect, are regularly very high. However, each EU member state has its own merger control, where the turnover thresholds are significantly lower. It must also be taken into account here that merger control must be taken into account in all the EU member states in which the takeover has an effect. In addition, small and medium-sized companies are particularly affected by merger control if they are the target company and the buying company “breaks” the sales threshold. In this respect, it must also be taken into account that the law does not contain any provisions on confidentiality agreements. Buyers and sellers, as contracting parties, must therefore regulate all important points themselves through their contract.
Merger control prohibits any action or measure equivalent to consummating a takeover before the merger control process is complete. This means that prior to merger control clearance, the buyer, seller and target company must "keep their feet still" before beginning the execution of the transaction. They may already conclude the contracts for the share deal or asset deal. But they must include the condition that the contract should not take effect until merger control clearance has been given. The companies involved often overlook this so-called enforcement ban. It includes not only the share deal contract or asset deal contract, but all measures that can be understood as the beginning of the contract implementation. The Federal Cartel Office and the European Commission react very sensitively to a violation of this enforcement ban, also known as "gun jumping".